If you’re renting in Lafayette or Acadiana, you may have asked yourself:
“Am I better off continuing to rent, or should I buy a home?”
It’s a great question and the answer isn’t as simple as comparing your monthly rent to a mortgage payment.
Buying a home comes with expenses that renters don’t have. But homeownership can also offer something renting doesn’t: the opportunity to build equity in an asset you own.
So instead of telling you that buying is always better than renting, let’s look at what it really costs to buy a home and some of the questions you should ask before deciding.
First, Renting Isn’t Always a Bad Financial Decision
I don’t believe everyone should buy a house just because they can.
Renting may make perfect sense if you’re unsure where you’ll be living a year or two from now, you’re still building your savings, your employment situation may change, or you simply don’t want the maintenance and responsibilities that come with owning a home.
Renting gives you flexibility.
Homeownership generally makes more sense when you’re financially prepared, comfortable with the total monthly expense, and expect to stay in the area long enough for buying to fit your plans.
The important thing is to understand the real numbers before making your decision.
How Much Money Do You Actually Need to Buy a House?
One of the biggest misconceptions I hear from potential buyers is:
“I need 20% down to buy a house.”
Not necessarily.
There are several types of mortgage programs, and some may allow qualified buyers to purchase with considerably less than 20% down. Depending on your circumstances, there may also be programs offering down-payment or closing-cost assistance. There are location specific 100% financing programs. You would be surprised which areas qualify for 100% financing. Some programs are forgiving when it comes to lower credit scores or some negative marks on a credit report.
The right loan depends on your income, credit, debt, property, eligibility and other factors, so this is where a knowledgeable mortgage lender becomes an important part of your home-buying team. I can help you with a referral to a knowledgeable mortgage lender that offers all of these programs.
But your down payment isn’t the only money you’ll need.
The Down Payment
Your down payment is the portion of the purchase price you pay upfront rather than finance.
For example, on a $250,000 home:
A 0% down payment would be $0.00.
A 3% down payment would be $7,500.
A 5% down payment would be $12,500.
A 10% down payment would be $25,000.
A 20% down payment would be $50,000.
Those examples are simply to show the math—not to suggest that every buyer will qualify for a particular loan program or down-payment amount.
And remember:
You don’t necessarily need $50,000 sitting in the bank to buy a $250,000 house. Some loan programs allow gift or grant funds.
Talk to a lender before assuming homeownership is out of reach.
What About Closing Costs?
This is the expense first-time buyers sometimes forget.
In addition to the down payment, a buyer can have closing costs associated with obtaining the mortgage and completing the transaction.
Depending on the transaction, those expenses may include items such as lender fees, appraisal fees, title-related expenses, prepaid insurance, prepaid property taxes, escrow deposits and other settlement charges.
Your lender should provide estimates based on your specific loan.
And here’s something else many buyers don’t realize:
Some closing costs may be negotiable.
Depending on the market, property, loan program and seller’s circumstances, it may be possible to negotiate for the seller to contribute toward allowable buyer closing costs.
It’s not guaranteed, but it’s something I look at when we’re structuring an offer. Your finances are always taken into consideration when making an offer.
Your Mortgage Payment Is More Than Principal and Interest
Let’s say you find an online mortgage calculator and the estimated principal-and-interest payment looks comfortable.
Great—but don’t stop there.
Your actual monthly housing expense could include:
Principal – the portion of your payment reducing your loan balance.
Interest – the cost of borrowing the money.
Property taxes – generally incorporated into your monthly payment when your lender maintains an escrow account.
Homeowners insurance – another significant expense that needs to be included in your budget.
Flood insurance – depending on the property, flood zone, lender requirements and your personal decision about coverage.
Mortgage insurance – certain loans or down-payment amounts may require mortgage insurance.
HOA dues – if the home is located within a homeowners association.
That’s why I encourage buyers not to ask only:
“What’s the mortgage payment?”
Instead ask:
“What will my TOTAL monthly housing expense be?”
That’s the number that matters!
Don’t Forget About Maintenance
When you rent and the air conditioner stops working, you generally call the landlord.
When you own the house, you’re the landlord.
Homeowners need to plan for maintenance and unexpected repairs.
Air-conditioning systems eventually need service or replacement. Appliances break. Roofs don’t last forever. Plumbing problems happen. Houses need painting, landscaping and routine maintenance.
That doesn’t mean buying is a bad investment.
It simply means you shouldn’t buy at the absolute top of what a lender says you can qualify for if doing so leaves you without enough financial breathing room for everyday life and home repairs.
Qualifying for a certain loan amount and being comfortable with that payment are two different things.
And don’t forget, we can ask the seller to provide a home warranty at closing. This will allow some breathing room on some repairs. It doesn’t cover everything but is good to have as a backup.
So Why Buy Instead of Rent?
If buying costs money upfront and homeowners are responsible for repairs, why do people buy?
One major reason is equity.
When you rent, your monthly payment provides you with a place to live for that month.
When you own a home with a mortgage, part of your principal and interest payment goes toward reducing the amount you owe. Over time, that can help you build equity.
Your equity can also increase if the property’s value appreciates but home values are not guaranteed to rise, and real estate markets can go up or down.
Homeownership can also provide stability.
With a fixed rate mortgage, the principal and interest portion of your payment remains fixed for the life of the loan, although taxes, insurance and HOA costs can change.
Rent, on the other hand, may increase when your lease renews. This is very often the case, making homeownership a viable option.
But Isn’t Renting Cheaper?
Sometimes it is.
That’s why I don’t like blanket statements such as “Renting is throwing your money away.”
You’re paying for housing either way.
A renter pays for the right to occupy someone else’s property without assuming most of the long-term responsibilities of ownership.
A homeowner takes on more responsibility and more financial risk, but also has the potential to build equity.
The better question isn’t:
“Is renting bad?”
It’s:
“Which option makes more sense for where I am in my life right now?”
Let’s Look at a Simple Example
Suppose you’re paying $1,800 per month in rent.
That’s $21,600 per year for housing.
Over five years, assuming the rent never increased, you would pay $108,000.
But that doesn’t automatically mean buying would save you $108,000.
A homeowner during those same five years would also have paid mortgage interest, property taxes, insurance, maintenance and potentially mortgage insurance, HOA dues and other expenses.
And if the homeowner sold, there could be costs associated with selling the property.
That’s why an honest rent-versus-buy comparison needs to look at more than the monthly payment.
How Long Do You Plan to Stay?
This is an important question.
Buying and later selling a home involves transaction costs. If you think there’s a good chance you’ll relocate in a year, buying may not make sense.
If you expect to stay for several years, the calculation can look very different.
There’s no universal number of years that makes buying automatically better. It depends on the purchase price, financing, future market value, rent increases, selling expenses and other factors.
That’s why your individual situation matters.
What About Interest Rates?
Buyers sometimes decide to wait because mortgage rates aren’t where they’d like them to be.
That’s understandable.
But interest rates are only one part of the equation.
Home prices, inventory, competition, negotiating opportunities and your personal financial situation matter too.
If rates eventually decline, refinancing may be an option for some homeowners if they qualify and the savings justify the cost.
But no one can guarantee what future mortgage rates or home prices will be.
Rather than trying to perfectly time the market, I encourage buyers to focus on whether the home and total payment make sense today.
Before Renewing Your Lease, Run the Numbers
This is one of the easiest opportunities renters miss.
Your lease renewal arrives and you sign it automatically.
Before you do, why not find out what your alternatives actually look like?
You may discover that buying isn’t right for you yet.
That’s okay.
Or you may discover that you’re much closer to being able to purchase a home than you thought.
You won’t know until you run the numbers.
Start With a Mortgage Preapproval—Before You Start Looking at Houses
I strongly recommend talking with a reputable lender before falling in love with a house.
A lender can help you understand:
What loan programs you may qualify for
How much down payment you may need
Estimated closing costs
Your approximate interest rate
Your estimated total monthly payment
Whether mortgage insurance applies
What price range may be comfortable for you
And remember: what you qualify for doesn’t have to be what you spend.
If a lender says you can purchase a $350,000 home but you’re more comfortable with the payment on a $275,000 home, then $275,000 may be the better budget for you.
Your home should enhance your life—not make you nervous every time the mortgage payment comes due.
Not Sure Whether You Should Rent or Buy? Let’s Figure It Out.
If you’re currently renting in Lafayette or the surrounding Acadiana area and wondering whether homeownership could make sense, I’d be happy to help you explore your options.
You don’t have to be ready to buy tomorrow.
I can help you understand what homes are available in different price ranges, explain the home-buying process, connect you with a trusted local lender and help you compare what you’re currently paying in rent with what homeownership could realistically look like.
And if we run the numbers and buying doesn’t make sense for you right now?
I’ll tell you that too.
I’d rather help you make a smart decision than push you into a home before you’re ready.
But don’t assume you can’t buy simply because you don’t have 20% down or because you’ve heard that buying a house is too expensive.
Get the facts first.
You may be closer to owning a home than you think.
Melanie Nash, Broker/Owner
National Realty of Acadiana LLC
Lafayette, Louisiana
nationalrealtyacadiana.com
Local Expertise. Personal Service. Proven Results.